Subdued investment in fossil fuels may mean higher volatility is here to stay
and Spain, governments are rushing through emergency measures to protect consumers. Factories are being temporarily switched off, from aluminium smelters in Mexico to fertiliser plants in Britain. Markets are frantic. One trader says it is like the global financial crisis for commodities.
This year odd weather has featured again. A hot summer has added to booming gas demand in Asia. The region accounts for almost three-quarters of global LNG imports, according to AllianceBernstein, a financial firm. China led the way, thanks to its swift economic recovery. In the first half of 2021 its power generation jumped by 16% compared with the previous year. Three-fifths of China’s power is generated by coal; a fifth comes from hydropower.
Booming demand has been met with lower supply of LNG. A long list of small disruptions has nibbled away at global output. Some of the outages were caused by maintenance work delayed during the covid pandemic. Others, such as a fire at a Norwegian LNG plant, were unplanned. The combined effect of all these disruptions was to cut global LNG supply by roughly 5%, estimates Mike Fulwood of the Oxford Institute for Energy Studies .
Europe has been hit by peculiar weather in other ways. Across the north-west of the continent the air has been still, reducing wind generation. In Germany, for example, during the first two weeks of September wind-power generation was 50% below its five-year average. Moreover, usually European utilities respond to high gas prices by using more coal. But the price of coal is also at near-record highs on the back of demand for electricity and production bottlenecks.
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